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SS Integration - Q'ly Statements


austin3515
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I've seen some providers (one fairly large one, in particular) take the position that SS Integration need only be disclosed on an annual basis (they indicate that they have spoken with their legal counsel on the matter). I couldn't agree more that disclosing this fact quarterly is way over-kill, but the way I read the law the only exception to quarterly info. is for vesting.

So are people disclosing SS integration Q'ly, or annually? If annually, what is the basis?

Austin Powers, CPA, QPA, ERPA

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We're doing it Q'ly per the same analysis you set forth.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Agreed.

In our opinion, if a statement is required quarterly (ERISA plan with participant direction), then the participant must receive certain info per quarter as well. This includes info regarding permitted disparity. We also thought this meant vesting too, but some informal statements by the DOL are saying that annual vesting statements are ok even if the regular statement information is provided quarterly. The DOL did not really do their best to think all of these things through in their FAB (which is like an IRS Notice).

This permitted disparity disclosure can be done by using the multiple statements method. In that case you could send the same extra page describing permitted disparity every single quarter. Seems very silly, but when you look at how the FAB is written, well, good-faith intrepretation says timing = quarterly and the content is the content.

We will use this quarterly approach for permitted disparity until further DOL guidelines are issued.

Of course, we are still under a "good faith compliance" period - which is kind of unusual for the DOL. So if you believe you can argue that you did your statements under your own good faith interpretation, then you may be ok.

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Bill, you're being too logical. For a BENEFIT statement, SS integration is only useful to an employee to determine his or her benefits in the context of a DB plan.

Unfortunately, the statute (ERISA sec 105(a)) wasn't amended to read that way. In paragraph (1) it specifies WHEN benefit statements are due, and separately addresses this frequency issue for DB plans separately from individual account plans. In paragraph (2) there is a listing of what must be in all benefits statements (subparagraph (A)) including the description of the plan's SS integration, and then additional items that must be in those for individual account plans (subparagraph (B)).

There is reported, second or third hand, that there are rumblings inside DoL of limiting the requirement for SS integration to just those for DB plans, but haven't seen anything yet.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Wait a minute, I think I can easily make the good faith leap now:

The law says (emphasis added): "must include an explanation of any permited disparity under section 401(l) of the internal revenue code "that may be applied in determining any accrued benefits described in clause (i).

Clause (i) discusses a) total benefits accrued, b) nonforfeitable balance, etc. In a DC plan, the way in which total benefits accrued are determined is based on the ACCOUNT BALANCE, and not any formula. Because a description of permitted disparity is not relevant to detemining one's account balance (i.e., the market value of investments is determinative), it is not applicable in determining accrued benefits, and therefore the plan's use of permitted disparity need not be disclosed!!!

Note too that Accrued Benefits refer to the benefit as of a particular date, and NOT a current year allocation.

Please comment NOT on whether you think I'm correct (because that is irrelevant!). Please comment on whether you think this meets the good-faith requirement.

Austin Powers, CPA, QPA, ERPA

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Austin, I carried that argument (to another forum) and got nowhere, but I think you're right (I know, you don't care about whether it's right or wrong).

I think if it got as far as court, yes, it would be determined to be good faith compliance. But I'd rather not get to that point if I can spit out something, however lame and weak, that an auditor could look at and check off on their checklist and move on to the next bit of irrelevance. I think the chances of ANY kind of enforcement on this issue are pretty remote, certainly for this year, but if you start down that slope where do you stop? (Rhetorical question, no need to reply!)

Ed Snyder

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I wouldn't say you weren't making a good faith estimate but I do think it is required. The PPA states "...shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code...". 401(l) defines permitted disparity for both DB and DC plans.

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Bill: DB only? IMHO, that would not be a good faith interpretation. Why chance it? - the penalty looks like $100 per day per participant.

austin3515: yeah baby, great idea :shades: . But again, why take the unnecessary risk? IMHO, just because the DOL wording was not as strong as is should have been, I would not take that leap.

Per Derrin Watson, the DOL plans to hold hearings likely in September, one for DB and one for DC. They will miss their August 17th deadline and issue model notices sometime after these hearings.

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Man, I really think I got the analysis right on this one. It really doesn't seem to be that aggressive of a position, especially considering the "good faith" requirement.

Can anyone point me to some sort of a flaw in the argument I've presented (one that doesn't include general opinion) that discredits it as good faith? Have I said anything that is clearly incorrect? So far the only reason for not omitting is "why take the chance?".

If there is no clear mis-reading, then by definition, it is a good faith interpretation.

Austin Powers, CPA, QPA, ERPA

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Here is the only flaw I can think of. Is that what you truly believe? If so, then I think you could argue that you made a good faith attempt. However, if you do not truly believe that is the interpretation then you have not made a good faith attempt and now I could also conclude that you have a possible ethics dilemma. I am not trying to say that you are unethical but I just wanted to throw that out there because I do believe it is important to consider in these types of situations.

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Here is the full quote from the ERISA Section 105(a)(2) STATEMENTS. --

(A) IN GENERAL. -- A pension benefit statement under paragraph (1) --

(i) shall indicate, on the basis of the latest available information --

(I) the total benefits accrued,
and

(II) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable,

(ii)
shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code of 1986
or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i),

(iii) shall be written in a manner calculated to be understood by the average plan participant, and

(iv) may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary.

DOL officials have informally commented that vesting can be provided annually in a separate statement. To me, your argument indicates that no explanation of permitted disparity is needed for any DC plan (maybe because it's not directly related to the accrued benefit - the account balance). However, if the plan is integrated, the integrated allocation amount is added to the account and becomes part of the accrued benefit, thus indirectly the integration determines the ultimate accrued benefit. I am not aware of any DOL officials indicating agreement toward the slant that you suggest.

Eliminating the issue saves you a lot of work, so be careful in the decision-making process to not taint the answer toward the result that you know you already want.

So, go ahead and roll the dice, do you feel lucky?

But as Obi-wan would say, "You must do what you feel is right, of course ."

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I can assure all that I am VERY ethical (often to the chagrin of my clients), and I do indeed believe that the interpretation I have set forth is reasonable. What's more, I have already discussed with the owners here obtaining the opinion of an ERISA attorney before moving forward.

However, if the plan is integrated, the integrated allocation amount is added to the account and becomes part of the accrued benefit, thus indirectly the integration determines the ultimate accrued benefit. I am not aware of any DOL officials indicating agreement toward the slant that you suggest.

I was hoping someone would say this!! So by that rationale, if the Plan was integrated at ANY TIME IN ITS HISTORY, then the Plan needs to include the integration disclosures, right?

Austin Powers, CPA, QPA, ERPA

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Nice one!

Okay, actually, I think the same good-faith interpretation rationale still applies. Would a reasonable person actually believe this to mean that we must disclose the explanation of the current and old permitted disparity provisons that were ever used by the plan in each of the prior years? A reasonable person certainly would not. Disclosing current plan provisions seems to be a reasonable good-faith interpretation. Disclosing no integrated provisions seems like a stretch to me (IMHO).

Back to the weak language problem.

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Something else I found in my notes is that the committee report for this section of PPA makes reference to integration in both DB and DC plans - just a general description, not proving anything, but the fact that there's nothing definitive saying NOT to include PD language for DCs is enough for me to take the cautious approach that we'll include it.

I think it's no stretch to say that Congress didn't have a clue what it was adopting with this provision and it's a result of some staffer having a bug up his or her butt about PD. What it accomplishes, I don't know.

Ed Snyder

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ASPPA filed a comment letter requesting that the DoL clarify that the PD disclosures only apply to DC plans. In addition, I thought I heard that one of the mutual fund companies had claimed to have received informal DoL guidance that the PD language only applied to DB plans.

Having said all that, it's on my firm's DC statements and it's on there quarterly

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I just got a letter from John Hancock saying that they will be including a generic description of PD on their statements, starting...maybe on the 3rd or 4th Q statements; I forgot already. But a generic description doesn't do much, IMO.

Ed Snyder

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